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| Sunday, 26 September 2004 |
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| News Business Features Editorial
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Structural Adjustment Programs and the World Bank Prof. Jagath Wickramasinghe, Professor of Economics, Sri Jayawardenepura University
Weekend newspapers carried rather an interesting interview of the World Bank country director in Sri Lanka, Mr. Peter Harold. Any sensible Sri Lankan would welcome his statement that the World Bank has changed its lending policy from structural adjustment programmes (SAP) to development policy lending. On numerous occasions here in Sri Lanka, as well as the world over, various economists and country leaders have criticised SAP on number of grounds, of which the major criticism was that the main thrust of the SAP was to create a captive market for the trans-national corporations in the developing countries. Unlike the World Bank's traditional project loans, such as Mahaweli development project loan, SAP was intended to push the programme of reforms that would cut across the whole economy. In the middle of nineteen eighties President Reagan apparently has instigated the IMF and the World Bank to formulate loan policies to reduce the role of the state in economic activities in the developing countries, having realised the likely threat, the impressive industrial development achieved by Japan, South Korea, Taiwan and later China, through state-led market economy, could pose to American industrial export market. In consequent to this request apparently the World Bank and IMF have coined this structural adjustment programmes (SAP). In fact a survey carried out by the UN Commission for Africa in 1988, concluded that the essence of SAP was the reduction/ removal of direct state intervention in productive and redistributive sectors of the economy. The theoretical underpinning for SAP is provided by the neo-liberalism, which most of the economists believe is anti-poor. A good example is Sri Lanka where in the recent past the incidence of poverty has increased after adopting SAP model. This is also called the "Washington Consensus". Neo-liberalism and "Washington Consensus", speak of the same thing, nevertheless has some differences, which we are not going to elaborate here. The main ingredients of the SAP are; Radically reducing government spending, a measure that in practice translated into cutting spending on health, education and welfare, Liberalising imports and removing restriction on foreign investment, ostensibly to make local industry more efficient by exposing them to foreign competition. Privatising state enterprises and embarking on radical deregulations in order to promote more efficient allocation and use of resources relying on market mechanism. Devaluing the currency in order to make exports more competitive thus resulting more dollars to service the foreign debt. Cutting or constraining wages and eliminating or weakening mechanism protecting labour like the minimum wage to remove what were seen as artificial barriers to the mobility of labour. Experiences of applying SAP in the developing countries are not encouraging either. In Mexico a study found 700,000 to 800,000 or 15% of the economically active population lost livelihood due to a fall in corn prices as a result of trade liberalisation. In India three million edible oil processors lost their jobs. Between 1999-2000 edible oil production fell in India by about 5.2 million tons and reduction of acreage by 12% after a sharp reduction of import tariffs from 65% to 15%, in the immediate past years. While here in Sri Lanka 300,000 jobs were lost as a result of onion and potatoes imports. However, this is not the first time that the World Bank has changed its policy stand. In the initial stages the World Bank was concentrating on guaranteeing the basic needs. In 1970s under the patronage of McNamara the World Bank had the policy of promoting 'Growth with equity'. Then project loans and SAP. In 1999 at the World trade Organisation (WTO) ministerial meeting at Seattle there was an unprecedented protest over the activities of the trio, the World Bank, the IMF and the WTO by the anti-globalisation lobby and Greens, and in response to that the loan policy of both the World Bank and the IMF (SAP) was changed to Poverty Reduction and Growth Facility (PRGF), wherein the ownership of the proposal was placed on the host country rather than on the donors. Under the PRGF, at least in theory, the development policies are formulated by the recipient country and presented to the donor agency for approval. "Regaining Sri Lanka" the development programme of the previous regime was the poverty reduction strategy paper (PRSP) under the PRGF. The way it was criticised by the intellectuals and the rejection of it by the people of Sri Lanka, suggest that any proposal presented under any form based on neo-liberalism, will not be acceptable to the developing world, particularly to Sri Lanka. It is alleged that the conditionalities placed on disbursement of loans under the SAP was removed from PRGF. However, most economists believe that PRGF was only the "change of the bottle, but the wine is the same." Another welcome development mentioned in his statement is that the loan policies are flexible and more than one option is available for development effort. Media here in Sri Lanka as well as the international media, have quite contrarily, engaged on an unprecedented campaign to brainwash the general public, proposing that neo-liberalism is the only available solution to the economic ills of the third world. In fact, Chicago school, under the patronage of Prof. Hayek and later Prof. Milton Friedman, launched a massive campaign, costing millions of dollars, to propagate neo-liberalism. Its main thrust was apparently to convince the third world that their only saviour is the neo-liberalism. The acceptance by the World Bank the availability of alternative policy stands for development of a country is a very positive development from the development country point of view. One such policy option is the state-led market economic model, which the present government is committed to. We believe these pleasant words will actually be put into practice and the World Bank will continue to help our country, as it did under the previous regime. |
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